28 January 2014:
Does DONG Energy Pursue the Wrong Targets?

I have been reluctant to contribute to the debate on the future of DONG Energy because I do not know much more than what has been presented by the media. I think that the current discussion on the sale of DONG Energy shares to Goldman Sachs reveals more questions than answers.

How did DONG Energy lose so much money?
DONG Energy has expanded by investments in several countries. According to DONG Energy's annual report 2012 the assets increased from DKK 106 billion in 2008 to DKK 160 billion in 2012. During the same period the interest-bearing debt has increased from DKK 19 billion to DKK 55 billion and the equity from DKK 46 billion to (only) DKK 50 billion.

DONG Energy has lost DKK 5 billion in 2012.

The agreement with Goldman Sachs is based on a valuation of DONG Energy A/S of DKK 31.5 billion which is considerably below the equity. Thus the value of DONG Energy's assets seems to be overestimated.

Why did the Danish state accept the conditions in the agreement with Goldman Sachs?
The search for private investors for DONG Energy is based on a political decision. However, no private investor seemed to be ready to accept the potential risk of losing their money. In the light of the economic results above this is understandable. The Goldman Sachs agreement is not attractive, but probably the least bad obtainable arrangement. Reversing a bad political decision seems not to be an option.

Why is it so important to DONG Energy to expand abroad?
The fact that DONG Energy is owned and controlled by the Danish state suggests that DONG Energy as an element of a green Danish policy has received a political instruction to invest in offshore wind parks. If this is the case it is natural that it is the finance minister who must find the necessary venture capital.

This is aparently a risky business area. The price of reducing that risk will be the loss of influence which is reflected in the agreement with Goldman Sachs. The green policy is simply expensive.

Several politicians in the parties which are supposed to support the agreement have raised the issue of postponing the final decision in order to consider possible alternatives.

The most obvious alternative would be to limit the ambitions of DONG Energy to a level which DONG Energy can afford and to business areas serving Danish consumers.

Opdateret d. 29.1.2014